Peak Oil 4 : The crucial links

You only need two links to keep up to date but just keeping up with them will take several hours per week!
Energy Bulletin for comprehensive up to date news and links relating to PO:
http://www.energybulletin.net/
The Oil Drum bulletin board for excellent detailed analysis and discussion:
http://www.theoildrum.com/
TOD is IMO (= in my opinion) the most significant and important site on the internet today.

Good explanatory sites about PO:
http://energybulletin.net/primer.php (Energy Bulletin PO primer)http://en.wikipedia.org/wiki/Hubbert_peak (Wikipedia)
http://www.lifeaftertheoilcrash.net/ (Matt Savinar)
http://wolfatthedoor.org.uk/ (UK, has French and some Polish content versions)
http://www.ccs.neu.edu/home/gene/peakoil/ (Detailed explanation and analysis by Gene Cooperman)

Other good resources:
http://www.globalpublicmedia.com/ (audio, video, written; interviews, presentations etc about PO etc)
http://www.peakoil.net/ (ASPO: Association for the Study of Peak Oil)
http://www.peakoil.ie/ (ASPO Ireland, mentioned because it's a better source of the ASPO newsletter and home of Colin Campbell)
http://www.odac-info.org/ (UK Oil Depletion Analysis Centre)
http://www.postcarbon.org/ (USA Post Carbon Institute)
http://www.powerswitch.org.uk/ (UK Powerswitch)
http://www.oilcrisis.com/
http://www.drydipstick.com/ (link metadirectory)
http://www.oilcrash.com/ (NZ, some Arabic, Chinese, Russian, French, Italien content)
http://www.kunstler.com/ (James H. Kunstler main site...)
http://jameshowardkunstler.typepad.com/clusterfuck_nation/ (...and blog)

Government and their official agencies:
http://www.eia.doe.gov/ (US Energy Information Agency, important source of data and dubious forecasts)http://www.dti.gov.uk/energy/inform/energy_stats/index.shtml (UK DTI energy stats)

Oil industry sites:
http://www.cera.com/home/ (CERA consultancy)
http://www.gasandoil.com/ (Alexander's)
http://www.willyoujoinus.com/ (Chevron - warning about PO!!!)

Peak Oil 3 : Where you're at

1. Avoidance
2. Denial
3. Anger
4. Acceptance
4. Depression
5. Positive action

No, it isn't a mistake having two #4, either or both can happen, simultaneously, separately, in either order.

You may not experience every stage, some may never get past the first, but the odds are you will get to at least 2. since you are here.

I'm probably at a combination of 4 and 5. I've definitely been taking some positive action for a year and more. I no longer seek to find ways to 'logically' avoid what is inevitably coming so I presume I'm past acceptance, but I am often depressed by how stupid we humans persist in being, especially most of our political leaders.

You will have to decide for yourself where you are at, but I will add some words of caution. I'm not talking about 'rational' things here, you may well understand peak oil on an intellectual level, understanding it on an emotional level is quite, quite different. That is what I am referring to. Don't be surprised if you get the urge to weep or bang your head against a wall, I would consider that normal and perhaps a healthy sign that you are nearing acceptance. After all, life as you have lived it and expected it to continue will be gone within a mere handful of years at most. It's kinda like a devout Christian, ecstatic at the sight of God descending to Earth, then hearing him say "I'm Beelzebub, I killed your God 10,000 years ago, Christ was my son, you are mine."

2005 Predictions Assessed

I made these specific predictions in late December 2004 and have added my assessment of their accuracy in early December 2005 in brackets below each paragraph. Got a couple of fairly stunning long shots (Pope and Israel), but a couple of others failed totally (Bush, Japan). The economic predictions were an average mix, the US $ and economy proved stronger than I expected. I failed to predict two major hurricanes hitting near New Orleans.

2005, the "maybe but probably not" year

I think that 2005 will not see the inevitable coming storms unleashed, but if we are unlucky and / or some semi-random events trigger it then 2005 may be the year "the slide" clearly begins, 2006 or 2007 are more likely.

The two important underlying threats: peak oil and the great global (economic) depression will probably not hit in a big way during 2005. The depression is the more likely, I guess a probability of about 40%. Many events could trigger it: a too rapid decline in the $, rapid increases in US interest rates, one of the US asset or debt bubbles bursting, China or Japan selling their $ bonds, a terrorist or geopolitical event. My feeling is 12 to 18 months hence is more likely as the clear start of the depression.

The sooner the depression starts the later peak oil is likely to hit, and since this is the greater threat maybe we should hope for an early global depression - there is a slim chance that a few years' grace before peak oil really hits may be enough time for humans to devise a way out of the consequences. Hopefully some temporary interruption to supplies of oil will help us see sense, perhaps a revolution in Saudi Arabia which disrupts their supply for a year or two. Without the depression kicking in first or some other major temporary interruption to oil supplies I expect peak oil to be apparent and real by 2008 at latest.

So much for the maybes and important issues.

Iraq will go from bad to worse, well before yearend it will be obvious that a multi state solution or very loose confederation is inevitable. The US will either be humiliated by its inability to maintain adequate security and stability or will have to introduce the draft to provide the troops required (at least double, more likely treble current forces) to have some semblance of control. I do not expect the 'global community' to be stupid enough to help the US out with troops so the US can start conflicts elsewhere.
[30% Iraq got worse but not enough to trigger the drastic US actions I expected]

I feel that neither GW Bush nor Dick Cheney will be US president at 31st Dec 2005. It's not clear how this could happen, the death of both is a possibility but I don't think that occurs. More likely is some impeachment or similar process that affects them both. I think this starts in early May and ends in October.
[0% but I still feel it will happen before the normal end of Bush's term]

If a significant terrorist event on US mainland occurs I feel that will be in March, round about 22nd, but I think it will be averted. I also think that is when China will revalue its currency aganst the US $, I expect the trade weighted value of the $ to be worth over 10% less than currently by late April - that will be its lowest value for well over 30 years - it will be lower still by yearend.
[25% got the China revaluation, though I expected it in April, almost no one expected it before Sept at the very earliest so I was better than them; totally wrong on the US$]

Tony Blair (Labour) will barely win the UK election if held on 5th May - he will have an overall majority of less than 10 seats, if this happens I expect Blair to resign by September. The Liberal Democrats will do (relatively) best but still not have 100 seats, their increased vote will have the effect of giving the Tories some gains (the only ones they get, lol). It is very possible - about 40% - that the election will not be held then due to world events, Blair would win more conclusively if the election were held in October 2005.
[25% Labour did worse than expected but not as badly as I thought]

The Pope dies, in April I think, next Pope is Italian but a black (skinned) Pope comes close to winning.
[80% spot on for J-P II but the replacement, Benedict, is German]

Something very odd happens in Israeli politics, this is the most significant mid-east event of the year (therefore I do not expect Saud to be overthrown), like the Likud party splitting and part joining with the Labour party. In May I think.
[80% though it happened near 6 months later than expected, it happened almost exactly as I felt but I didn't describe it well. This is the most significant happening in Israeli politics for 30 years so I am proud of this long shot]

A major environmental event happens in Japan in early June, probably a problem with a nuclear reactor, perhaps in part due to an earthquake.
[0% on this long shot]

Interesting, the shaping events seem to all happen in the northern spring quarter (March 21st - June 21st) then things seem to go on pause till the autumn quarter (starts 21st Sept). I interpret this as: wait until the spring events clarify before seeking to read further.

Independence Day in USA will be a time of sad reflection and soul searching - I don't think this is due to some dire event, more a questioning of what was taken for granted: self doubt, state doubt, religious doubt? I think it is partly GW Bush related - he is seen as a betrayer.
[0% but, again, I feel this will happen some US holiday in the next couple of years and will be obvious]

The price of oil will fluctuate a bit, with a low of just below $40 in January, a lesser peak of over $60 in April and a higher peak of maybe $75 around late October. US shares are at their maximum early in year, my guess Feb 12th, but the low for year will be more than 25% below that peak, that could happen in April or October onwards.
[60% the oil prices were pretty good, though both the April peak at $58.10 and September peak at $70.85 were a tad lower than I guessed and the second was near 2 months earlier than I expected. Stocks - as measured by DJIA - did peak on Feb 16th but made a very slightly higher peak on about March 12th, I don't think they will beat that in the next month though they are close. Totally wrong on the 25% dip which would have taken the DJIA down to near 8000.]

Assets should be moved out of US and $ denominated stocks and securities, if you are in US open a Canadian account and move surplus money there. Debts should be at the best fixed interest rates you can find, move them if not, US interest rates may double this year.
[0% US stocks have held up, $ has gained, real US interest rates are barely above where they were, but the time is coming...]

An odd year and probably seemingly inconclusive in the scheme of things. Could be the events of 2005 will give decisive shape to what follows soonafter. It could be a very hot summer in several parts of northern hemisphere, mid June to mid July in UK (August wet again, lol) and Europe, August in USA and Canada.
[0% on weather]

[Overall I rate these predictions at 30%, should do better but shows promise. ]

How to get $500 bbl oil in 3 months

[Note: I wrote this last October, 2005, before the media noise about the US or Israel bombing Iran. It was never a prediction, only an artificial scenario illustrating how close a massive increase in oil prices might be if events conspired. It was unlikely when I wrote it, it is less likely now that Ariel Sharon is incapacitated, but best hope that Netinyahu isn't the next prime minister of Israel ;) However, I do feel that late March / early April 2006 is going to be a very dangerous time.]

I'm amused by the shock some folks express when a price of oil of $100 or $200 is predicted in the next few years, and by diehards who say it will drop back to $30 (not before US unemployment nears 20% I'd guess), so here's a scenario that could easily result in $500 bbl oil in 3 months...

March 2006
Israel bombs Iran nuclear facilities ; oil $130 from $70 (note: overflies Iraq, avoiding Saudi airspace, USA complicit)
China begins noticeable selling of US securities, $ drops 10% in a month

April 2006
Widespread uprisings assisted by Iran in central & southern Iraq ; oil $160
US casualties in Iraq over 1000 in one month

May 2006
US Invades Iran "to secure Iraq border" ; oil $240
Revolution in Saudi ; oil $360
US too stretched to intervene in Saudi until too late
US$ plunge continues China revalues Yuan to 5 per US$ ; oil $400

Note that approx 20% of global oil production comes from Saudi, Iran, Iraq, Kuwait; a fair bit of that will be off the table for some time, at least. I guessimate that there would be an approximate 50% increase in the oil price for every 2% of global supply reduction due to short term disruption, on that basis a reduction of 10% of global supply (that is 5 multiplicative 50% price increases) would result in a jump from $70 to over $500.

June 2006
Impeachment of Bush and Cheney begins (ostensibly for illegal war but really because of oil shortage and price)
New Saudi regime ceases all trade with USA, signs agreements with China
China annexes Taiwan peaceably (almost totally)
OPEC bans all oil exports to USA
US$ 50% of Dec 2005 value ; oil $500 ; gold $2000 per oz

July 2006
Bush and Cheney resign, put under arrest
Senate and Congress unanimously request ex-president Jimmy Carter to serve till 2009 with John McCain as VP
US pulls out of Iran, begins negotiations for pull out from Iraq at UN
Oil $450, US gasoline $20 / gallon
Goldbugs who took profits at $1000 per oz back in early May are unhappy

Subsequently...
OPEC oil is no longer sold for US$
World Court requests extradition of Bush, Cheney and others on war crimes charges
Saudi requests extradition of Saud families and their money from USA (to where they mostly escaped) as a precondition for them and OPEC resuming oil exports to USA
USA endorses World Court, extradites Bush, Cheney, Sauds - neatly avoiding divisive US trials
US economy shrinks by 25% over 2 years
Oil price drops to $300 by end of 2006 but mid east output still 25% below 2005 levels
2004 becomes recognised as the probable year of peak (conventional) oil [actually we know this is true already!]

I know some of this is a bit fanciful, particularly the JC for president bit, but it would be deliciously ironic if he could at last implement his energy plan of 25 years ago. I think most of these events are plausible and many less predictable things have happened. Note that no terrorist acts against the USA, no newks, no plagues, no major wars, no mining of Saudi oilfields, were needed to conjure $500 oil, so there is plenty of scope for $1000 oil!

Levels of Collapse (warning: may be disturbing)

A couple of years ago I invented this scale as a broad framework for assessing what might be expected. Someday I will probably devise intermediate points, especially for levels 2, 3 and 4 which I anticipate being the low point of the next 30 years and for which knowledge and skills preservation will be most critical. If anyone knows of similar attempts to devise such a scale I'd be very interested, I've not seen any.

1. Short term, basic infrastructure and money system remain operational, possible interruptions to electric, gas and water supplies. Less locally devastating than severe floods, earthquakes, storms etc but much more widespread. Many businesses cease operation, significant unemployment. Larger impact than anything in developed countries in last 50 years, worse than 'Great Depression' of 1930s.

2. Short term, considerable economic dislocation but basic infrastructure and money system (local at least, but probably not at 'normal' value) remain largely intact. Low die off (< 5 to 10% ?) unless widespread lawlessness when it could be higher, perhaps >25% in some dense population areas. Probable need to survive a few weeks or months without normal water / gas / electricity / shopping supplies for a significant proportion of population.

3. Short term, significant collapse of infrastructure and money but sufficient remains to re-establish pre-existing society if it does fragment and repair most critical damage within months or a few years. Electricity, water, currency value all largely absent for several months, maybe years. Low to medium die off for developed countries, perhaps 20% to 60%. Probably equivalent to go back 40 to 80 years. Most important knowledge probably preserved.

4. Medium term, most infrastructure, government, money systems fail. Most systems and infrastructure have to be rebuilt locally once the population has learned to survive and feed itself. Medium die off for developed countries, 40% to 80% overall, very variable between urban and country areas, could range from 0% to 95% for different localities. Probably equivalent to go back 100 to 300 years. Significant knowledge lost.

5. Long term. This is mostly differentiated from medium term by the amount of population, skills, knowledge, that are lost. Major die off for developed countries, 70% to 90%. Go back 500+ years. Most knowledge lost.

6. Very long term. 90% to 99% human population lost, survival and repopulation first priority. Go back 1000+ years, nearly all knowledge lost.

7. Re-evolve 1. Human experiment terminated. Go back 1+ million years, apes probably still best bet.

8. Re-evolve 2. Back to small mammals / reptiles / insects, back 50+ million years.

9. Unicellular / full restart.

The first two levels are insufficient, of themselves, of providing sufficient 're-adjustment' to solve the resource and other problems we will imminently face, thus it is very likely that further shocks / collapses would follow level 1 and 2 collapses.

A level 2 collapse might hopefully trigger a massive change in human priorities, behavior and intent such that we could avoid anything worse and buy us the time to find solutions - that is my best guess of our best hope. A level 1 collapse is unlikely to be sufficient.

Level 3 or greater collapses will disable countries as functional entities, mostly temporarily in the case of level 3. But local survival becomes the priority for years. Level 3 is the least level of collapse that, of itself, probably makes humanity sustainable beyond this century.

2006 Financial forecasts

(Written late December 2005, first posted online 2nd January 2006 here:
http://www.theoildrum.com/comments/2006/1/2/101214/8972/2#2 )

Things will remain much the same until something breaks or some event breaks them. What happens then could be dramatic or could be manageable, that is difficult to predict yet. So far the US Fed, in particular, combined with cooperative and blinkered markets have proven very capable at managing things smoothly. One must remember that such a course is also to the benefit of the major market players, for example, stocks become a safer bet if one knows the Fed will step in to help avoid a serious plunge.

But massive global and US imbalances remain. Can they be managed away before some exogenous events trigger less controllable adjustment? Do the imbalances generate sufficient tension to make drastic adjustment inevitable without exogenous events. I am pessimistic that the status quo is viable much longer and expect at least the first signs of catastrophic change to show in 2006. But the US and global economies have been more stable and resilient in 2005 than I expected so I may be premature on this.

The big winners of the year will continue to be commodities and especially gold. Inflation is seen as a growing problem, much more so than in the last decade, that is a major driving force for gold to increase in value. There has been a significant increase in liquidity (central banks printing excessive money) in the last 4 years particularly but also, especially in the US, over the last decade. So far that has popped up mostly as booms in things like stocks, property, now commodities. Excess money from oil revenues and Chinese trade surpluses must go somewhere and gold looks safer than currency denominated assets. Some central banks have also been diversifying into gold and the central banks which have been selling it in recent years (most developed countries who have held major gold reserves) haven't so much now.

I expect gold to make a jump to near $600 by April before pausing, and to climb above $650 later in 2006 - it could exceed $750 but that would be more dependent on response to unexpected events. The risk of gold dropping below $400 are very, very minimal (say 1%), below $450 is unlikely (10%). With current gold price about $500 I think the bet is straightforward: 10% risk of 10% loss but a 10% chance of 50% gain and 50% chance of 20% to 30% gain (30% probability it remains in $450 to $600 range throughout 2006).

Oil is close to a cusp, I think. It has increased in price by over 30% in each of the last 3 years. That has spurred just about all possible rapidly available production to come onstream. Some biggish new projects are due to come online in 2006 so there is a possibility that there will be a slight oversupply in the near term. The two critical factors are: will decline rates in the current major fields in production (FIP) be higher than current fairly optimistic predictions; will there be a significant reduction in demand (currently expected to be 1.9% increased demand) due to a global slowdown? A few months back I coined "Agric's law of oil price" which is: the average price of oil in a calendar year will be within 5% of the maximum price for the previous calendar year (Nymex light sweet, next month quote). This has been true the last 3 years, I expect it will continue to be so until prices go haywire. That gives an average price in 2006 of $70.

I expect the oil price to creep up to $70 by mid march. Thereafter I predict a spike to about $95 in response to some external event, it could happen by mid April. Will $100 oil happen in 2006? Maybe not based on current supply and demand but there is a significant probability that geopolitical or supply disruption events do cause a $100+ spike. I do not expect the oil price to drop to $40, even $50 is unlikely since a key support level at $56 has held well in recent months.

Silver price is likely to follow gold. Copper is much more difficult to predict. It has doubled in price the last couple of years and is due for a 25% downwards correction. However, there are conflicting reports on whether supply will be above or below demand (much driven by the Chinese building and infrastructure boom). Three to six months ago most industry watchers were saying that supply would be above demand in 2006 and a drop in price inevitable. Since then the price has risen 20+% and people are less sanguine about supply. I think a correction is likely but the general strength in metal prices may make that fairly short lived until an economic slowdown (especially if in China) happens. I expect the price to drop from current level of about $2.00 to below $1.60, probably by March to May, then climb back to above $1.80.

I need to digress about the US Homeland Investment Act, 2004 (HIA). It gave US corporations a two year window to pay only 5.25% tax on profits repatriated from overseas operations rather than the normal 35%. This provison ends with a company's financial yearend preceding 22nd October 2006 and should be mostly unwound before mid 2006 (dependent on individual companies' financial years, most end 31st December). It is estimated to have created an inflow of $300+ billion into the US economy. In retrospect I think this will be seen to have given a significant boost to US economy and stocks, and its ending may bode ill for them. It may also have helped a little to support the US$.

Currencies. Well, I got this wrong in 2005. In part I think this was due to the HIA and increased price of oil which is traded (almost exclusively) in US$. Also I expected the US economy to be weaker and probably limit the Fed rate hikes. The Fed are expected to have a further 2 or 3 rate hikes, ending in March or May, these should continue to support the US$. But, by mid year, supporting pressures on the US$ are likely to be dissapating, the US economy weakening, and a downwards correction probable. Until then, barring major geopolitical / market events, the US$ should remain in the 88 to 92% range of its index. Thereafter it should decline to about 85%. However, I expect events to intervene and cause some quite sudden drops in US$: down to about 82% in April and, later in the year, (after a recovery to possibly 85%) I expect a dip to 80%.

Can the US economy continue to grow at around 4%? No. OK, how about 3%? Possibly, but the odds are against it. For US growth to stay at or above 3% almost everything has to go right. US consumers must continue to spend money they don't have and further increase borrowing beyond current record levels despite interest rate increases. There must be no significant drop in US property prices. Foreigners must continue to increase investment in US treasuries. There must be no major financial market problems like hedge fund or derivatives domino style collapse. US stock prices need to remain near present levels. I find it difficult to believe that all of these will come true.

I expect US GDP (as currently measured) to drop to 2% growth for the first half of 2006 and be flat in the second half of 2006.

Stocks are likely to take a small battering. I predict a steady mild decline for the DJIA to about 10,000 by mid March, a sudden drop to perhaps 9,000 in April. A deeper low of between 7,500 and 8,500 is probable, most likely in October. Of course there will be bounces back up a bit, but if the DJIA is much above 8,500 at yearend they will have done well. That would be a 20% drop on the year. Retailers, automotive, financial sectors are likely to be hard hit. Utilities and commodity stocks least hurt.

Who killed the 'American Dream'?

(There are a number of answers to my question but I am thinking of two specific ones: an individual, and a group of people. No conspiracy, both obvious and inter-related.)

Last August (2005) I penned this for a young american friend of mine...

Back when there were about half as many humans, before Intel made the first integrated chip (1974), when mainframe computers about as powerful as modern wristwatches were just becoming available costing $ millions and were the size of rooms, I read a book. "Limits to Growth" was written by a handful of academics who wanted to try out these new computers for modelling and forecasting something. Nowadays they'd probably try it on stocks and shares, then they modelled the future of the human race and its interaction with this planet. Some people walked around with their eyes open in those days and were brave enough to look at meaningful things.

The computers were slow, the models simple, the results probably mostly inaccurate, but it was the first time people had systematically considered human and economic growth and when it would run into the natural limits of this planet to support them. There was no simple answer but the one I remembered was: things probably start to run out around 2016 give or take a few years. More than 40 years away, plenty of time for us smart humans to fix things. Ah, the optimism of youth.

About four years ago I was seeing mention of 'peak oil' and began looking into it. Realistic estimates (from ASPO) then were that it would happen about 2012, still over 10 years away but starting to get close - time for me to begin thinking of what I should be doing, and where, when peak oil hit. Well, in these last 4 years I've watched with growing concern as that estimate has moved to 2010, 2008, 2007 - the estimated date for peak oil and the present date have been rushing together at similar speed [Note: January 2006, ASPO have put their peak oil date back to 2010 mostly due to anticipated additional non-conventional oil]. Like two galaxies colliding the first impacts have already happened and their ripples have begun to distort and rip our reality, though few have noticed yet.

Peak oil brings the end of the 'American Dream', the US economic and financial systems have minimal chance of surviving it, the next 10 years will bring at best the halving of wealth of the american people, or halving US population, or maybe both, or maybe worse.

In the latter half of the 1970s the american people elected a truly honest president, it coincided with the last energy crisis. He set out what the USA must do to become virtually independent of foreign energy supplies. It never happened, he wasn't re-elected.

Had the american people, congress and senate supported Carter and implemented the energy policy that he spelled out very clearly the world would be very different today and peak oil would be at least a decade farther away. We would have time to change further and the US would already be at least half way on that positive road. But, as Carter said "There is no way to avoid sacrifice...". That didn't sound nice so the american people turned their back on truth, embraced illusion, and postponed the (then small) sacrifice. Thus was humanity and this planet betrayed.